Tappable home equity has nearly returned to its 2022 peak, but elevated interest rates are keeping homeowners from exploring options to tap it. This is according to the December 2023 Mortgage Monitor Report released earlier this month by Intercontinental Exchange (ICE).
“Despite the resurgence in tappable equity among U.S. mortgage holders, elevated interest rates are making homeowners reluctant to extract that wealth,” said Andy Walden, ICE VP of enterprise research. “Indeed, in recent quarters, equity withdrawal rates have been running at less than half their long-run averages. Mortgage holders extracted a mere 0.41% of tappable equity available at the beginning of Q3.”
That comes out to roughly 55% below the average withdrawal rate seen in the 12 years leading up to the most recent rate tightening cycle from the Federal Reserve, Walden explained.
“That’s equivalent to $54 billion – $250B over the last 18 months – in ‘missing’ withdrawals that might have otherwise stimulated the broader economy,” he added.
However, increases in home equity are also leading to low default and foreclosure activity when speaking broadly about the current market. Borrowers’ generally strong equity positions should temper expectations of a “foreclosure wave,” including those who may be seriously delinquent.
Foreclosure starts remain 35% below norms of the COVID-19 pandemic despite having reached an 18-month high in October, Walden said.
“Lenders and servicers have many more options for working with borrowers to avoid foreclosure today than at almost any point in the past,” he said. “Just to illustrate the scope: 70% of loans currently three or more payments past due are protected from foreclosure by ongoing loss mitigation efforts. Further, 58% of these seriously delinquent mortgage holders hold more than 20% equity stakes in their homes.”
Recent news regarding rates has been encouraging. This week, the Federal Open Markets Committee (FOMC) convened, with Federal Reserve Chairman Jerome Powell saying that the Fed anticipates making three 25 basis point rate cuts in 2024 despite inflation remaining “elevated.”
